Level Up With BitGo: Prime Trading

As the digital asset landscape continues to evolve, the importance of separating trading and digital asset custody has never been more crucial. Today BitGo, as a leader in this space, offers this market structure through two legal entities- BitGo South Dakota Trust (BitGo Trust) and BitGo Prime.

BitGo Trust and BitGo Prime

BitGo Trust is a regulated custodian that holds clients’ assets and BitGo Prime provides OTC trading, order execution, and comprehensive reporting with dedicated 24/7 support. Clients can seize market opportunities, confidently manage their digital assets, and mitigate risk. These two entities collaborate to grant the flexibility necessary to effectively manage digital assets while providing the security cryptocurrencies require.

Learn why BitGo has become the preferred solution for institutional market participants from two key BitGo executives. Adam Sporn, Head of BitGo’s Prime and U.S. Institutional Sales has over twenty years of experience leading securities finance and prime brokerage sales teams in traditional finance, and Sanchit Pande Head of BitGo trading and financing, with over a decade of experience in managing prime brokerage and agency execution platforms for foreign exchange and fixed income.

Join us as we talk markets, Prime, and navigating digital assets.

How has custodial trading changed since the events of 2022?

Sanchit: Historically, the digital asset market structure evolved vertically, with a single entity offering trade execution, clearing, custody, etc. This structure was driven by the retail focus of early digital assets firms serving this nascent space. It allowed them to streamline the user experience and provide a one-stop shop for customer needs. With the growing popularity of this asset class, early institutions adopted their workflows for this predominantly retail offering.

On the other side, BitGo, founded in 2013, recognized the institutional demand and built products to serve institutions. For example, our trade offering is designed to segregate trading from custody. Clients can keep their funds on BitGo Trust, which is regulated, insured, and bankruptcy remote, while seamlessly using BitGo Prime. These two entities are separate with different functions but collaborate to deliver assets to each other. Recent years have catalyzed institutions to seek solutions that mitigate systemic risk and drive a robust market structure.

Adam: Our structure allows clients to access deep liquidity with tight spreads while trading with BitGo Prime, given the array of liquidity providers (LPs) we are connected with. This setup has become increasingly important post-FTX. We expect this trend to continue as clients segregate collateral from counterparties, and this is why we’ve seen an increasing demand for tri-party collateral management, Go Network, and Prime Trading offerings.

What features does BitGo offer that I won’t find anywhere else?

Adam: We believe BitGo’s product set is the most complete solution for institutions investing in this new asset class. Clients appreciate BitGo being the first purpose-built custodian and having that track record of protecting client assets while continually innovating to add coin coverage and services to support our client’s needs.

Our Go Network lets clients instantaneously settle digital assets and USD between BitGo clients. We’ve added our delivery versus payment (DVP) capabilities so that BitGo clients can mitigate counterparty exposure to each other versus having to deliver collateral first and hope they receive collateral back. Clients significantly reduce their counterparty risk by settling these assets via an atomic swap with BitGo.

We’ve also considerably grown our tri-party collateral management capabilities, where we believe we are the market leader given the number of pledgors and secured parties that are actively signed up and using BitGo to post collateral for their derivative or financing activities.

How do digital assets compare to traditional markets based on your experience?

Sanchit: It’s too early to compare; digital asset markets are still in their infancy. If you look at the last major innovation in financial markets (i.e., derivatives), they have existed for hundreds of years but burst in popularity in the late 20th century. So far, we have just had a decade of crypto markets; continued innovation & adoption, enhanced market structure, and regulatory clarity will drive further growth and scale new heights.

The properties of blockchain, the ability to tokenize assets or program rules via smart contracts, can be an evolution for many traditional markets. I suspect we have only scratched the surface of how these two very different market ecosystems will interact. We’ve seen crypto move into TradFi (CME futures, public equities), and some assets move into crypto (stablecoins, treasuries, and other pegged projects).

How do you meet clients’ needs in a market that never sleeps?

Sanchit: 24x7 operations have pushed the industry to innovate and rethink how infrastructure should operate in the digital era. Looking at it fundamentally, it can be a new concept for clients coming from TradFi, but it has been the norm for many tech-enabled services. Consider ride-sharing platforms which are two-sided markets; customers expect them to be constantly available, and they have access to customer support 24/7 if needed.

These concepts can be extended to digital asset markets. At BitGo, we build always-online products that allow our customers to self-serve. At the same time, we are staffing our global offices with experts who can provide the proper support when required.

Why does the market need BitGo Prime?

Sanchit: We have long advocated for segregation of custody and trading, and our offering was built with this guiding principle. For a long time, market participants underestimated the counterparty risk of entities holding their assets due to the excessive risk-taking in other activities carried out by those entities; these risks needed to be communicated, and thus, participants picked efficiency and convenience.

The collapse of many firms that followed this model has inspired market participants to hold their assets with regulated and bankruptcy remote custodians. Risk can be expensive and invisible until something breaks; BitGo exists to mitigate this by having guard rails that separate trading and custody.

With our implementation, clients’ assets are held with BitGo Trust Company, an insured, regulated, and bankruptcy remote entity. Assets leave a client’s account only when a trade is submitted. BitGo Prime LLC serves as the counterparty and sources liquidity from an extensive network of liquidity providers to allow our clients optimal execution for their trading.

BitGo Prime LLC is not an exchange, proprietary desk, or market maker. BitGo Prime operates as a riskless principal. Our implementation ensures client assets are always protected and held in the client’s name at BitGo Trust Company.

For a long time since the introduction of our trading offering, the challenge was to build awareness of how our Prime mitigates risk. FTX, unfortunately, provided a valuable industry-wide lesson that will, in time, strengthen the industry.

Adam: Prime allows clients to scale their trading strategies while effectively managing risks. This approach has taken time and a significant investment. However, seeing significant incremental flow year over year has paid off despite a challenging macro environment. The market has asked for this platform, and BitGo Prime delivers it.

Why should BitGo Prime be the platform of choice for institutions?

Adam: BitGo’s more than 10-year track record of safely storing clients’ assets, our Qualified Custodian status, SOC 1 and SOC 2 Type 2 certifications, and $250M insurance policy make us an attractive option for institutions. We’ve focused on adding expertise across our organization so clients are comfortable that we understand their needs. Whether it’s an asset manager, hedge fund, venture capital firm, family office, a Bitcoin miner, or a high net-worth individual, we deliver trust to everyone who needs it.

While digital asset custody is an integral part of our business, clients often want to know that they can trade, stake, and move collateral to allow them to scale their investment strategies. Security and flexibility to navigate the markets are the vision that many are seeking.

Sanchit: Our approach is to keep building products and services. We continuously collect feedback from our clients, and our product teams are shipping new features that cater to these needs. Thus, for institutions, our platform feels familiar and convenient.

What is next for BitGo Prime? How will BitGo Prime build for future cycles?

Sanchit: Digital asset markets are evolving and we are committed to staying at the forefront and adapting to the needs of our clients. We are poised to elevate the trading experience to new heights in 2024 with a wide range of upcoming features.

Among the major efforts in the pipeline is the ability to borrow — a necessity for ensuring the efficiency of markets. Additionally, we are set to integrate Prime into our Go Network, significantly enhancing the utility of assets within Prime Trade.

We’re always evaluating our offerings and expect to support more assets and plan on adding a variety of new order execution methods. In the long term, we’re always aiming for users to have a faster settlement period and a shorter withdrawal experience. These enhancements underscore BitGo Prime’s commitment to delivering a comprehensive and cutting-edge platform for our clients.

Tell us about BitGo’s Go Network. What is its primary value to clients?

Adam: The Go Network allows clients to instantly settle USD and digital assets between parties on the network, either with one-way transfer or DVP. Go Network will enable clients to get the benefits of qualified custody and cold storage while scaling their strategies efficiently. Off-exchange settlement within the network allows clients to hold assets in cold storage and trade versus exchanges, mitigating exposure and the need to pre-fund.

Our clients ask for this market infrastructure that separates exchanges from custody. We recently announced a partnership with Copper’s ClearLoop, which will provide our clients access to additional exchanges globally.

Walk me through liquidating $10M worth of Ether into USD. How long does it take? Who is my counterparty? What are the fees?

Sanchit: The short answer is ‘It depends’.

Executing an order of this size has many factors to consider; current volatility, price impact, and the speed of execution. BitGo Prime allows you to move fast, or slow to align with your own priorities. Fast execution may result in higher slippage for larger orders, whereas slower execution over time may expose you to market movements against you, albeit smaller execution chunks reduce slippage. We also offer many order types to allow you to customize your execution process.

For a client, BitGo Prime is their principal digital asset trading counterparty, and the client sees an all-in price to trade, which includes a spread charged by BitGo.

Closing Thoughts

BitGo specializes in crypto asset custody, offering solutions to meet the specific custodial needs of institutional clients. Recognizing the dynamic nature of markets, we aim to empower our clients with the flexibility to react using BitGo Prime. Our ability to rapidly adapt to market dynamics positions, coupled with our unwavering commitment to a high level of security, innovation, and client-centric services is why we are the preferred choice for institutions navigating the markets.

Our mission is centered on delivering trust, and we remain steadfast in advancing the separation of trading and custody.

Connect with us if you’d like to learn more about BitGo Prime Trading.